A reminder of how hyperlocal real estate investing can be

[Shiva Bhaskar]

Our group invests in multifamily properties in Los Angeles (in several different areas within both the city of Los Angeles, and other cities in LA County). On Saturday, we went to look at 2 potential deals, in an area where we already own several properties. 

On one of these, we were in contact directly with the seller, while the other was with a realtor we know, who is trying to sell the property off the MLS. Both of these properties are 6 to 10 unit multifamily buildings, located what was a very rough part of LA that is improving, and has lots of investor activity. You also have some new development happening in the area.

The first property and second property are just 7 blocks apart, north south along the same cross streets. You could walk from one to the other in about 9 minutes.

The first property was on a quiet block, and kept in tidy condition. Rents are under market, and there's some deferred maintenance, both of which we like. This looks to be a very promising opportunity. We're excited! 

The second property might as well have been on a different planet. While the tenants kept the insides of the units we saw clean, the outside of the building (and plumbing and electrical) require tons of work. Still, at the right price, that's actually good for us.

More troubling to me was the very obvious gang graffiti on the front of the building, on the sidewalk in front of the building, and on nearby buildings (including on a single family home). I also saw some graffiti from a rival gang, which was crossed off, and tells me that there is some tension between the two groups. The realtor, who's actually a very good guy, acknowledged there were some issues in the area, but as he correctly pointed out, people who invest there are used to it. 

Further research revealed that 3 properties on the same block as the second property were under an abatement ordered by the police and city attorney, due to many tenants being involved in drug sales and gangs. Obviously, this block has problems. You can find streets like this (and much worse) in every major city in America. 

Here's the thing: Tenants who might live in the area are not unaware of the differences between these two blocks. The market rents on the two properties are undoubtedly different, and so is the long-term potential. You won't figure this out from Costar or Zillow or most other data sources. 

It would be hard to figure all this out if we didn't drive to properties regularly, walk the area, manage in-house and so on. A good realtor can help, but frankly, many realtors who focus on 5+ unit multifamily properties cover many areas, and would not necessarily know this. 

I think there are some people who do a great job of building a team out of state, and invest successfully. I have friends who do this, and I have great respect for it.

Still, I know that finding the best deals, and avoiding the worst deals, are more likely if you invest locally and have deep local knowledge. I know for a fact that out of state (and out of country) investors operate in this same area as us, and would likely not have had access to either of these transactions, or if they did, might not find out this difference until it was too late. 

 Wherever you live in the country, if you can find an area which is within a 45 minute drive to invest, your chances of success are incredible. I've seen this hold true in so many different places. Something to consider.